What Options Are There for Medical Bills in Canada?

Just because Canada has a single-payer healthcare system doesn’t mean there are no medical expenses. There are several things that are left to the Canadian Taxpayer to pay: dental, optical, medication, chiropractic, and counselling… just to name a few. Though these are not paid by the government, they can be offset by methods in the insurance and tax industries.

There are three basic methods to deal with medical and health costs in Canada. The first is the medical expense field in the personal income tax form. Listing each cost individually on the form and providing the original receipt will generate a non-refundable tax credit. The question is, what ROI (return on investment) is there on those receipts? Is it worth keeping them? If so, how much?

The answer to these questions is complex. I ran 162 different situations through the tax program. The situations ranged from an annual income of $12K to $100K and medical expenses from $100 to $15,000. There isn’t ONE conclusion. There are many various RANGES, restrictions and ‘caps’ to the credits produced. It’s the most bizarre thing to try to explain in written words. Generally, with income above $35K, receipts less than $2000 produce credits ranging from zero to minimal (2% ROI). The HIGHEST return is with receipts at $5K and income at $25K (43% ROI) and with receipts totalling LESS than $5K, it drops FAST, down to 12% at $1K while receipts totalling HIGHER than $5K ROI will also DROP down to 26%.

There is another GENERAL observation about income versus medical receipts. The more you make, the less the ROI on medical receipts. The general rule is, anything over a $50K taxable income (which most all truck drivers fall into) will produce a ROI LESS than the income tax rate paid at that level. So, in trucker language, on average, medical receipts in your personal income tax produces a moderate but unimpressive refund. There are several slide rulers operating at the same time in this minefield.

The second method to deal with medical and health costs is group insurance. Probably the most popular method used due to a general understanding that your medical bills are ‘covered’ by these policies. Though true in some forms, as an accountant I always look at the ROI (return on Investment). Adding up your monthly contributions, what is your total benefit received (receipts/invoices paid)? If you paid $2400 per year into a plan and only receive coverage of $1800, you have a negative ROI (and should have probably self-ensured). However, if you received coverage of $3800, you have a 58% ROI. The problem with all insurance is that we usually don’t know what we will use. If you are young, your needs will usually be very little compared to a senior with a family. So, in the end it’s a very personal choice; a personal rolling of the dice. Do you ‘self-ensure’, or do you group plan your medical expenses? It’s a very individual choice. If you have a 3–6-month emergency fund, it may be better (but not always) for young to middle-aged people to self-insure.

The third and final method is Medical Trusts. There are only about a half dozen Medical Trust Companies in Canada and the method used is not very well known. It is a system only used by a small fraction of citizens (usually the wealthy). However, it is the BEST or most consistent return for ALL ranges of income (the higher the income, the higher the ROI). The return will average about 3-8% LESS than your tax rate. If you own your own corporation and are employed by it, here is how it works: Pay your medical bill with your own after-tax money, hand in your invoice to your corporation and then send in a check (to the Medical Trust Company) for the amount of the receipt (with the receipt) and the appropriate administration fee charged/required by the Medical Trust Company (ranging from 5-15%). The Medical Trust Company will then process the check and refund the medical receipt to YOU (the employee) as a non-taxable benefit. The corporation can then use the medical expense (plus administration cost) as a 100% tax deduction (less those precious GST/HST credits). This converts an after-tax personal expense into a non-taxable benefit. It’s sweet… except (of course) you must pay the invoice 2.1x before you get the second payment back as a refund (basically from your own corporation).

When someone chooses to use the personal income tax method, they should realize that the medical expense portion of the income tax return is one of the most highly audited portions in the entire income tax return (especially if they are a higher-than-normal percentage of your income). Auditors can and will use their discretion as to what is an acceptable medical expense and what is NOT acceptable.

When someone uses Medical Trusts, the ‘acceptance’ of expenses is up to the Medical Trust Company. In general terms, it would be very safe to conclude that Medical Trusts are much more accepting of expenses than is CRA. Though acceptance varies from Trust to Trust, it would be in your best interest to interview various Trusts and verify what they allow and what they do not, as well as what their administration rate is and (if applicable) what is their sign-up fee (not all trusts have sign up fees). One of the best advantages of this system is… you only have costs when you use the system. If you have no medical expenses one year… you have no costs. Period.

As an Independent Operator, if you can expense medical costs through your corporation, it will only reduce your taxes further. Though the tax benefit is nice, it still does not compare to the non-taxable benefit described in my first book “Taxes, Taxes, Taxes”. Check it out if you want to reduce your taxes by $12K per year.

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About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him at www.makingyourmilescount.com or 1-877-987-9787.